At the July 2018 meeting of the American Savings Education Council, there was a presentation about a spending in retirement by the Employee Benefit Research Institute (EBRI). Below are some take-away findings that caught my attention:
¨ Non-housing assets of three groups of retirees were studied: those with assets of less than $200,000, those with $200,000 to $500,000, and those with more than $500,000. Not surprisingly, the highest asset group had the smallest decline in the value of their assets between year 2 and year 18 of retirement.
¨ A significant number of households exhaust almost all of their non-housing assets. On the other hand, a large number of households actually continue to grow their assets throughout retirement. Many spend considerably less than they could afford to.
¨ Most retirees believe it is not difficult to maintain their pre-retirement standard of living. However, 44% of workers are not confident that they will be able to afford their current lifestyle. One possible explanation for this difference is that spending patterns and daily activities change as people get older.
¨ A longer life expectancy means a higher probability of entering a nursing home. The statistics found by the EBRI researchers were that 15.3% of those who died between ages 70 and 74 and 61% of those who died at or after age 95 reported a nursing home stay.
¨ Drivers of overspending and running out of money in retirement include potential financial shocks (e.g., divorce, widowhood, and disability), uncertainty and confusion, and lack of knowledge about later life financial decisions (e.g., long-term care planning and required minimum distributions).
¨ Drivers of people unnecessarily living below their means include bequest motives, the joy of having an increasing nest egg, and fewer material needs in later life. In addition, investors hate to experience monetary losses and pulling money out of personal savings may feel like a “loss” to some people.
¨ Uncertainty in retirement was predicted to grow in the future due to the following four factors: 1. Fewer people will have defined benefit pension plan income, 2. Potential reductions in Social Security, Medicare, and Medicaid, 3. Longer life spans, and 4. Fewer children to rely on.